Banking agencies propose changes to capital rules for HVCRE exposures

Current financial reporting, governance, and risk management topics

From the federal financial institution regulators

Banking agencies issue proposal on HVCRE loans

The Board of Governors of the Federal Reserve System (Fed), the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) on Sept. 18, 2018, issued a proposal to modify their capital rules for high-volatility commercial real estate (HVCRE) exposures. The proposal would revise the definition of “HVCRE exposure” to conform to the statutory definition of “high-volatility commercial real estate acquisition, development, or construction,” as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

The changes would apply to all banking organizations subject to the agencies’ capital rules.

Comments are due Nov. 27, 2018.

FDIC addresses reciprocal deposits

As part of its effort to revisit the brokered deposit rules due to changes in technology, business models, and product types, the FDIC on Sept. 13, 2018, issued a proposed rule to implement Section 202 of the EGRRCPA.

The proposed rule would exempt well-capitalized and well-rated institutions from the requirement to treat reciprocal deposits as brokered deposits up to the lesser of 20 percent of their total liabilities or $5 billion. In addition, institutions that are not both well-capitalized and well-rated would also in certain cases be able to exclude reciprocal deposits from their brokered deposits.

Comments are due Oct. 26, 2018.

FFIEC proposes call report revisions

The Federal Financial Institutions Examination Council (FFIEC) issued a request for comments on proposed revisions to the Consolidated Reports of Condition and Income (call reports) on Oct. 2, 2018. The revisions conform credit loss reporting to the accounting treatment under Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The changes to the call reports would phase in from March 31, 2019, through Dec. 31, 2022. 

Comments are due Nov. 27, 2018.

OCC proposes increased federal savings associations’ business flexibility

On Sept. 10, 2018, the OCC proposed a rule that would give federal savings associations greater business flexibility to adapt to new economic conditions and business environments without having to change their charters.

The proposed rule would implement Section 206 of the EGRRCPA, which requires the OCC to issue regulations to allow federal savings associations with total consolidated assets of $20 billion or less as of Dec. 31, 2017, to elect to operate with the same rights and privileges as national banks and be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations.

Comments are due Nov. 19, 2018.

OCC releases 2019 supervision priorities

On Sept. 25, 2018, the OCC released its “Fiscal Year 2019 Bank Supervision Operating Plan,” identifying the priorities for each of its supervisory operating units.

For FY 2019, which started on Oct. 1, 2018, in addition to the fundamental supervision to assign ratings, these risk areas will be part of the units’ focus:

• Cybersecurity and operational resiliency
• Commercial and retail credit loan underwriting, concentration risk management, credit risk management, and the allowance for loan and lease losses
• Bank Secrecy Act/anti-money laundering compliance
• Internal controls and end-to-end processes necessary for product and service delivery

From the Financial Accounting Standards Board (FASB)

FASAC discusses income tax disclosures, transition alternatives, and SEC referral

At its quarterly meeting on Sept. 25, 2018, the Financial Accounting Standards Advisory Council (FASAC) discussed several topics including:

• Currently required and proposed income tax disclosures, as well as whether additional disclosures should be required as a result of the Tax Cuts and Jobs Act. The FASAC observed that certain undistributed foreign earnings disclosures may no longer be warranted and that new disclosures for the Tax Cuts and Jobs Act are unnecessary.
• The Securities and Exchange Commission’s (SEC) Disclosure Update and Simplification rule (commonly referred to as DUSTR). The FASAC advised the FASB to review the SEC’s request to add certain disclosures requirements into GAAP.
• Transition and effective date alternatives in recent standards, including staggered effective dates and early adoption. The FASAC generally expressed support for the alternatives and discussed cost considerations involved when multiple alternatives are offered.

From the Public Company Accounting Oversight Board (PCAOB)

PCAOB announces new director of Internal Oversight and Performance Assurance

On Oct. 9, 2018, the PCAOB announced the appointment of Ryan Sack as director of the Office of Internal Oversight and Performance Assurance, which provides examination of the PCAOB’s internal operations and programs. Sack has more than 20 years of experience in the internal audit and assurance field and was most recently at Orbital ATK as internal audit vice president.

From the Securities and Exchange Commission (SEC)

SEC issues proposal to amend single-issuer exemption for broker-dealers

The SEC on Sept. 20, 2018, released for comment a proposal that would exempt a broker-dealer that acts as a broker (agent) for a single issuer from the requirement to engage an independent accountant to certify its annual reports.

Comments are due Oct. 29, 2018.

SEC publishes Disclosure Update and Simplification rule

On Oct. 4, 2018, the SEC’s Disclosure Update and Simplification rule, commonly referred to as DUSTR, was published in the Federal Register, and the effective date for the rule is Nov. 5, 2018. However, the new interim requirement to present changes in stockholders’ equity in Form 10-Q is not required until the interim period beginning after Nov. 5, 2018, pursuant to staff guidance in Compliance and Disclosure Interpretation (C&DI) 105.09. Therefore, a calendar year-end institution must first comply with the new stockholders’ equity disclosure in its March 31, 2019, Form 10-Q.

See more on DUSTR in “SEC adopts disclosure simplifications” in the September “Financial Institutions Executive Briefing.”